Revisiting Abbott Labs: Recent Pullback Found Support At The 52-Week Moving Average

I wrote an article on Abbott Laboratories (ABT) back on March 31 and I pointed out how the company had near-perfect fundamental ratings from Tickeron and how the stock was moving higher within a trend channel. I also pointed out how the three-week drop in the second half of February and the first week of March had brought the stock out of overbought territory. Unfortunately, the company cut its 2021 outlook back on June 1 and that sent the stock tumbling.

The lowered outlook came as the company announced that the demand for COVID-19 testing was falling quickly. The ensuing drop in the stock caused it to fall below the lower rail of the upwardly-sloped trend channel I pointed out in my original article, but the stock appears to have found support at its 52-week moving average.

The red lines depict the trend channel that I noted back in March. After looking at the chart following the big drop from a few weeks ago, I couldn’t help but notice how the trend line connecting the lows from December ’18 and October ’19 also connected to the low two weeks ago. We also see that the weekly stochastic indicators have dropped dramatically and are down near the 20 level—a level not seen very much in the last three and a half years.

Fundamental Ratings Aren’t As Good, but They Are Still Pretty Good

When I wrote the article at the end of March, Abbott’s fundamental ratings from Tickeron were almost perfect. The company got positive marks in five different categories and neutral marks in the other two. The company still gets positive marks in three of the same categories: the Outlook Rating, the Valuation Rating, and the Profit vs. Risk Rating. The SMR Rating is still neutral, but the Price Growth Rating has dropped to a neutral reading and the P/E Growth Rating has dropped to a negative reading from a positive one. The Seasonality Score was positive and now it isn’t applicable.

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The statistics that make up those ratings are still really strong. Abbott has seen earnings grow by 13% per year over the last three years while revenue has grown by 6% per year. In the most recent quarterly report, earnings jumped 103% and revenue jumped by 35%. Despite the lowered forecast, earnings are still expected to increase by 22% in 2021 while revenue is expected to increase by 13.7%. Analysts are forecasting annualized growth of 12.84% over the next five years.

Since the forecast was lowered by the company, analysts have lowered their forecasts accordingly. Even with the lowered forecast, Abbott is expected to report EPS of $1.02 in the second quarter and that is 79% higher than the $0.57 the company reported in Q2 2020. The annual EPS figures have been lowered to $4.38 after the lowered guidance, and that’s where the 22% growth figure for the year comes in. The company’s EPS for 2020 was $3.65.

Abbott scores well in the profitability measurements as well. The return on equity is 20.5% and the profit margin is 22.3%. Both of those figures are well above average.

Short Interest Has Continued to Climb

One area of analysis that I pointed out in the previous article was the sentiment toward the stock. Analysts and short-sellers were a little more optimistic on Abbott than the average stock, but it wasn’t enough to cause concern due to the positive signs from the fundamentals and the chart. The sentiment hasn’t changed a great deal, but we also don’t have the whole picture after the lowered guidance.

Analysts are still pretty bullish on the stock. There are 24 ratings with 19 “buy” ratings, three “hold” ratings, and two “sell” ratings. This puts the buy percentage at 79.2% and that is slightly higher than the average range which falls between 65% and 75%.

The short interest ratio was at 2.5 in March, but I noted how the number of shares sold short had jumped from mid-February through mid-March. The short interest then jumped from 10.5 million to 12.7 million. Now the short interest is up to 14.57 million and the short-interest ratio is 3.1. The latest figures available are from May 28 and that is just before the guidance was lowered. It will be interesting to see whether short-sellers took profits after the drop or if they added to their position. We should get those figures in about 10 days.

A number of things have changed in the last two and a half months, but the overall outlook for Abbott is still pretty solid. The fundamentals are still better than most companies, even after the lowered guidance.

The pullback after the lowered guidance brought the stock down to support at its 52-week moving average and the weekly stochastic indicators are as close to oversold as we’ve seen in the last three years. In the past, anytime the indicators were as low as they are now, it represented a pretty good buying opportunity.

Sentiment toward Abbott hasn’t changed a great deal, but there is some evidence that the bearish sentiment is growing. The short interest on the stock has continued to grow, but we don’t know what effect the recent announcement may have had on the short positions.

Overall, I still think Abbott is a good stock to own for the long term. The recent drop could be providing a great buying opportunity.

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